What is Days Payables Outstanding (DPO)?
Days Payables Outstanding measures the average number of days a company takes to pay its suppliers. The formula is (average accounts payable / cost of goods sold) x 365. A higher DPO means the company holds onto cash longer, but pushing it too high can damage supplier relationships.
How It Works
- Take average accounts payable from opening and closing balances.
- Divide by cost of goods sold.
- Multiply by 365 days.
- Compare against industry norms and credit terms granted by suppliers.
Saudi Context
Saudi corporates monitor DPO closely because ZATCA’s e-invoicing system makes supplier payment timing fully transparent.
Example
If average payables are SAR 8 million and COGS is SAR 40 million, DPO is (8 / 40) x 365 = 73 days.